On November 29, 2016, HUD published Notice PIH 2016-20 (HA) on the subject 2 CFR 200.311(c)(1) Disposition Instructions for the Public Housing Agency (PHA) Retention of Certain Public Housing Real Property (that is no longer used or was never used for public housing dwelling purposes) Free from Public Housing Use Restrictions (the “Notice”).  The Notice covers instances in which a PHA desires to retain particular property rather than sell, transfer or ground lease the property to a separate entity.

A main example for such disposition is property that once comprised public housing dwelling units assisted under Section 9 of the 1937 Act that are no longer receiving the benefit of any Section 9 assistance because the assistance was transferred through the Rental Assistance Demonstration (“RAD”). The Notice provides the following additional examples of public housing property that are eligible for disposition and retention by the PHA under the Notice:

• administrative buildings, central warehouses, garages, community buildings or other non-dwelling structures that the PHA no longer needs to support its public housing units;
• vacant land that formerly comprised public housing units that have been demolished with HUD approval under HOPE VI, Choice Neighborhoods grants, or Section 18 demolition under the 1937 Act;
• “excess” vacant land that was acquired by the PHA with public housing funds from the 1937 Act, but was never developed with units operated as public housing; and
• “excess” vacant land that was not released from the Declaration of Trust as part of a RAD.

Unless an exception is granted by HUD, a request to retain the property will require the PHA to compensate HUD based on applying the percentage of HUD’s participation in the cost of the original purchase (and costs of any improvements, including subsequent modernization) of the public housing property to the fair market value of the project or property. This calculation will often result in the PHA compensating HUD 100% of the fair market value of the property, since generally public housing property has been funded exclusively with public housing funds.

The PHA can request an exception to the compensation requirement under two scenarios. The first is if the public housing property proposed for retention will include development of rental housing or homeownership units that will be operated as housing affordable to low-income families (e.g., families with incomes at or below 80% of area median income with rents generally not to exceed 30% of 80% of area median income). The second scenario in which HUD will consider an exception to HUD compensation is if retention of the property will allow for a non-dwelling use that primarily serves or supports the service of low-income families.  HUD may require the recordation of a use restriction against the property, typically for not less than 30 years, if HUD grants a compensation exception.

To retain property as described in the Notice, PHAs must submit an Inventory Removal Application Form (HUD-52860) and HUD-52860 Addendum-G electronically and the Notice details the information to be included in the application, which includes, but is not limited to, specific authorization for the retention in the PHA Plan, an estimate of the fair market value based on an appraisal and a letter of support from the chief executive officer of the unit of local government.